hello again live from moscow this is r t it's half past nine now this thursday night these are all top stories further cutoff iranian banks are blacklisted by the worldwide system which runs international into bank transfers the swift organization says it's taking action to comply with e.u. measures against iran's nuclear ambitions as western pressure on the islamic republic grows. mass rallies both for and against the syrian government mark the first anniversary of unrest in the country. and the taliban suspends peace talks

with the u.s. president karzai says he wants nato out of all villages after an american soldier gunned down sixteen civilians in cold blood. and this is our see now for the next ninety minutes nightly appointment of you with washington d.c. the alone the show on air in thirty minutes but right now its capital account. good afternoon and welcome to capital account i'm lauren lister here in washington d.c. here are your headlines for march fourteenth two thousand and twelve goldman sachs is outed in a scathing resignation on the new york times op ed page from an executive director but what does this employees claim say about the priorities of goldman and other big banks today and the power they have over the global financial system. there the pull of the guys who own the nuclear power reactor and we don't have much the way

of other source of power and nobody wrong knows how to run the nuclear power reactors so we're hostage to the guys who run the nuclear power reactors we'll hear more from eve smith author of the popular blog naked capitalism and banks were sized up first stressed in a financial crisis scenario fifteen of the nineteen big banks the house the fed's task but when you look at all of the factors that would really pressure banks in a crisis isn't this a more accurate depiction of what it would actually look like. thanks . will break down exactly why you used to be worried about what you just saw an ben bernanke hero or villain it's the question explored in the cover story of the atlantic we'll tell you what we think let's get to today's capital account.

what is special day it is not every day you get to see a goldman sachs executive director telling everyone why he's leaving goldman in a new york times editorial by now everyone probably knows who greg smith is let me just tell you what he says is the formula for being a leader at goldman so we can rehash this a execute on the firm's axis which is goldman speak for persuading your clients to invest in the stocks or other products that we're trying to get rid of because they're not seen as having a lot of potential profit or be elephants which basically just means to trade whatever will bring the biggest profit to goldman or c find yourself sitting in a seat or your job is to trade any illiquid opaque product with

a three letter acronym yeah we know those m.d.'s c.d.s. c.d.o. that kind of thing but we just want to say wow how far we have come since the days after the financial crisis when goldman was being accused of knowingly selling clients investments they knew were bad and then profiting like in a temporal transactions to twenty two is the theory of this email. that chamber wolf was one q how much of that deal did you show to your clients after two twenty two two thousand and seven. mr chairman i don't know. yeah they always plug earlier i spoke about all of this there with she's author of the very popular financial blog naked capitalism and author of econ how unenlightened self-interest undermines democracy and corrected capitalism this

executive director of goldman sachs who has been there twelve years and comes out with this just scathing review of the firm very publicly which is kind of counter to what traditionally is the culture acknowledgements act so i'm told let's read a little bit of it and then i want to ask your input so he says one of the excerpts to put the problem in the simplest terms the interests of the client continue to be side land aligned in the way the firm operates and thinks about making money goldman sachs is one of the world's largest and most important investment banks and it is to ensure girl to global finance to continue to act this way now of course the question that comes about you know there was plenty of evidence in the wake of the financial crisis that goldman sachs seemed to be putting making money above all of any other concerns you had temper with you had out because you had these deals that had evidence that look like goldman was bundling and selling bad investments and then betting against them does this show this resignation letter show that this is still going on and if so this is kind of like

a blood clot that is stopping that movement in the circulatory system of the global financial system will basically yes and you know he was in the derivatives or he was the head of equity derivatives and one of the things that people don't quite appreciate is the way that you can effectively steal from clients with complicated derivatives in fact there was a one of the same schools on this is guys started traders guns and money and then he's got a formula for derivatives were no matter what you punch into it it's going to pay out zero and you'd never sort of know that if a client was paying a large amount of money for this riveted everyone thinking it was giving them something so there's a lot of ways that you can you can load risk or load extra fees into derivatives or clients just don't understand it the more complicated want to exchange traded want to pretty simple and you know if you're buying you know you know calls are poets the that's a different story we're talking of the customized ones. and those are those are just a very big profit machine for wall street and they've been full of abuses so i'm

not surprised that somebody from that area would particularly have been in a position to see you seem to be party to a lot of abuses also then telling on that is this limited or is this more reflective of more widespread practices with end of a.o.l. it's reflected the rights to says no in fact the you know i work with one of the leading there were five of my back in the early one nine hundred ninety s. column so since they're one of the leaders in over the counter derivatives and they were extremely upset in the days when their partnership and you know cared about the value of their franchise about the way their leaving competitor bankers trust was ripping off clients i mean they could see in the way their their their trains were prized they were loading in a lot of what they called edge that was the profit margin and they said there's no way these trades can work out and it's going to be bad for the market long term will approve not to be you know partly because it's what we take off of the customers to hurt themselves or the bankers trust went down over that very type of scandal where some customer customers were indeed as o'connor kind of four saw her so badly that they wound up suing them out alternately led to the demise of bankers

trust but you know just because bankers trust was the outlier doesn't mean that that pattern wasn't common even back in the early ninety's when over the counter derivatives started to become a big business well let's talk about if it's getting worse because that brings me to another part of his op ed where he says i can honestly say that the environment now is as toxic and destructive as i had ever seen it so my question is do you think the environment has gotten actually worse than financial crisis as banks perhaps have to go further to get the same profits because before the financial crisis you know you had this huge credit olympics because just extract wealth off it's hot and now do they have to be more creative or innovative or whatever and order to get the same profits you know that's a good hypothesis it's really hard to know but you're right that basically because banks you know they're complaining now about regulation. it hasn't even taken effect in the factories have blown up a lot of their customers and to your point where do you leverage and which means

a lot of the products they sold are rolling off or in some parts of the market it's moved to the higher quality companies and being able to finance it is most marginal math so you've got so derivatives are one of the many businesses and it's not hard to imagine they are pushing the envelope even harder to try to compensate for the profit they lost in the other businesses interesting and then i just want to bring up something else he said because he was talking about the evolution evolution of leadership the fed leadership used to be about ideas setting an example and doing the right thing today if you make enough money for the firm and are not currently an axe murderer which i think is key and you will be promoted into a position influence i'm wondering if you think this eat those of making money above all else maybe even overlooking past transgressions as long as you're not currently metaphorically an ax murderer is this more widespread then perhaps goldman is this is this a bigger eco's of the in the there's been this way for a very long time and we've had a big producer syndrome where with the you can sort of point to two key figures me

for example of frank quattrone first but you can put people you know in the last talk we had frank quattrone where they were they were putting all kinds of basically requiring customers that got that pos to do trades with a for a massively either massively off market prices or massively inflated commissions to pay them back and that just wasn't you know so they were effectively charging more than the published advertising. underwriting gross margin through this you know you have to direct other business to us because we're giving you these live pianos and you also have example in the other example just of the roi analysts conflicts that you know do get prosecuted to some degree would have this that this is hardly new i mean it's really hardly new and the difference is we're supposed to be an environment where people are supposed to be behaving more one and you know the goldman executive suggest it's not and. second you know goldman did at least have a culture of it my dear went to work through the early eighty's the eighty's and

you know they're getting something from took it only took around the margin when the customer was making money to save so if they actually figured it out they would really be very upset ok and it's just degraded over time but the big change does appear to be first appears to go boom when they went public in one thousand nine their peer to be a shift because the traders started becoming much more powerful if you look at goldman sachs of profits it shifted away from investment banking we have to care about reputation much more of the trading side became cemented when blankfein. when blankfein became c.e.o. there were other traders became more influential in the management group and i know people who were senior goldman who interestingly left around that time who said there was a big there was a big change that at least hank paulson was was technically the head of the firm john thing and john. were pretty influential in management of the thing actually so awful and cared about the franchise and that when the blankfein cohort came in there was just a big i mean that really was all we care about is profits and we don't really care

about tomorrow we just care about making money you know and that's something that greg smith says in his op ed is that this is really deteriorated under the watch of lloyd blankfein and he calls him out by name question though if this is the broader thing we know that making money is the number one goal and we've seen recent instances where it appears that people are willing to steal at least in the evidence that's been laid out an m.f. global there was an investigative journalist i interviewed yesterday who had a e-mail she did a story a long time ago about an executive at bear stearns all of these e-mails indicating he was engaging in defrauding his customers essentially went on to have an executive position at goldman so if we have these instances where looks like. bankers are willing or traders are willing to go to any lengths does this result in kind of a death of capitalism because nothing's moving there's no circulation there's no. oxygen there is no none of that circulation that you need for

a banking system to work properly well we still have people doing a lot of trading but you're right the question is is this are these transactions predatory that they ultimately extract so much that it's that we're not having the money flow to the right places in the banking system taking out too much steps along in the second is we've had areas of the market where the behavior has been so predatory they'd effectively shut down one is the private mortgage securitization market there was one deal done last year wow gone and why is that significant explain for people that maybe you can understand ok because before the crisis sixty percent of the market was was actually of the mortgage market was actually private label securitizations about forty percent was government guaranteed and partly because of the underwriting you know you know all the predatory lending but also because frankly the service servers have also been engaging in abuses regarding the foreclosures don't just hurt the the homeowners they also hurt the investors they're dragging out the foreclosure timetables because they don't want to take losses on second mortgages that they own and if they drag out the foreclosure

process they can charge more late fees the ultimately recoup on the house they sold and they charge more servicing fees so so there's like more extract and more extraction exactly it's not as dramatic. in the mortgage space as it is in derivatives but it's the same behavior pattern and i've had and i've spoken to mortgage investors and they said basically they won't touch it with you this is a so big that was going to be ten years before private mortgage securitization market comes back and so that's why we're having so much government involvement you know it basically expanding freddie in the f.h.a. now or that market. but more what is meant and still ahead the chairman of the federal reserve and the cover story of the atlantic for april it posits then bernanke you say of the global economy so why does everyone hate and i'll give you our three cents but first your closing market numbers.

the a. little. welcome back we were talking about this the goldman sachs op ed. resignation in the new york times we're talking about this what it means for the

banking system now one thing that stands out in all of this and looking back to to the financial crisis in the aftermath is that despite all of these things that clouded public opinion in fact we saw abacus we saw the vampire squid pieces lloyd blankfein grilled in senate hearings again and again on the hill all of those things that have hurt public opinion for goldman it hasn't translated to losing business according to media reports and here is someone on c.m. b.c. today talking about this whole issue in light of this op ed. the ones we got our tickets to within this fascinating amazing state operated is the idea that they will lose clients because at this point they haven't even though most of the clients i spoke to are fully aware of how goldman plays them and they still do business with them because they feel they have to so i asked dave smith author of the blog naked capitalism and the bookie caught on to i should mention she did work

at goldman in her career back in the eighty's i asked how it is possible because man has not lost business through all of this and what would change that. i hate to say it it's because good remember goldman used to be the firm with a good reputation so goldman has basically as much as ever no goldman does it that's an acknowledgement that everybody else has a two and three and golden does some things like i hate to say i have guys there four o'clock on friday in the summer you know if you want to do that who are caught on friday this summer they'll be golden guy on the desk to take your bid and they're very big and very big in prime brokerage they're going to a lot of hedge funds do business with them because there aren't that many firms that have the back office and the processes to be and will lend the money that's another big part of the prime brokerage business is providing credit so particularly hedge funds don't have that many you know firms that are perceived to be good at prime brokerage that you go to and then for institutions despite all this information coming out goldman is still one of the i.b.m.

you know that you use you know they're very powerful network effects in trading markets and so that you people want to go with the firm that executes a lot of order flow even if they know there's someone predatory solomon was in the same position in the bond markets in the one nine hundred eighty s. they were known as being on the one hand they would make very aggressive bids even when the markets were bad but the flip side is they were also known as being you know out for their own account and very rough and tumble and you know i mean they were the big you know the powerful bond trading for of it's day so getting these over the counter markets you know and i think the customers also have to fly out of themselves even though they're you know they're you know they can take out for. here ok so even though they're to get bail it sounds like they're also too big to not do business with as well. that's right raising their monopoly moving on no because that is speeding up the business models that these firms have the stress test of course came out and fifteen and nineteen banks passed is there any way to

believe that these banks are healthy if we don't know what and realize losses on loans they have or what kind of overstating it assets they've done and i question for you. well no i think personally i'm very skeptical i've long been very skeptical of the stress tests and here the fed went through this exercise and this time we have a really serious in our it was sort of built on the idea that your euro zone crisis the stock market would go down fifty percent and so forth and so on we have to pass i'm sorry you know you don't buy it no i mean if you have if you had a european banks fail which would probably happen in that would be one of the consequences of a dire scenario the markets are so interconnected that it's very difficult to imagine it would the u.s. bank would be caught with his underwear down i mean that's just very hard to imagine and one of the problems with the way a lot of these stress tests are designed is they really look more at the asset side of the balance sheet and that's important you know it seems like investments that they have and things you know and things like one of things i've been very critical

of is the way the biggest banks have very large second lien books on mortgages that probably should be written down a lot more than they are ok and then are committed to having mark to market and that so they've got air and that but on top of that i have my doubts as to how tough they are on the liability side of the balance sheet remember these banks have lots of exposures you know they you know they have derivatives positions that they have supposedly matched but they're all based on assumptions of dynamic hedging you know so that they're not these aren't likely put on a hedge and they can go like forget it they have to keep we just in hedges during the day and markets seize up they suddenly lose their ability to adjust the hedge and they start losing money on the underlying and start losing money on the hedge and suddenly something that looked matched wasn't matched and i sincerely doubt the fed was looking at that and we saw that and that appears to be why the losses that lehman got to be so big i mean every time you know lehman a six hundred sixty billion dollars bank with roughly half of it in in collateralized exposures with the other half was unsecured creditors they lost they

lost i think the purpose of the eight and half cents on the other half of their money so they lost in. they were still calling the go for the last numbers i saw were there so i estimated that the numbers were over two hundred billion on a six hundred billion dollars bank they've only attributed seventy five we're talking only seventy five billion only right at seventy five billion to disorderly collapse and i saw i've gone through the numbers in great detail in terms of what it could have been on the asset side of the balance sheet because everybody knew the marks were too high a lot of stuff and you still have a at least a fifty billion dollars. if not if not more like two hundred thirty billion dollars depending on where you put the numbers and that was all the liabilities side for my liking thomas trust that's not what they were stressing the fact that i've driven exposures dollar assets go down the derivatives it's just a blow out too so still way too many moving parts out of this is that you know he is i don't. really do understand exactly. think about i was you smith author

and writer for nate capitalism and of the book econ and be sure to check out our you tube page in the coming days because i spoke with her more we will have more in the form of a web exclusive with eve on the mortgage settlement with banks that twenty five billion dollars one because she has been covering that extensively and she really breaks down for us how it is that banks came out so well in that deal and homeowners also investors did not. all right time now for loose change that we can give you our three cents on some important stories dimitri and shannon are here to stay on this goldman sachs thing

because there's just so much in it we've got to hash it out one of the big takeaways from it is leaving goldman sachs one of those little nuggets in another excerpt he describes managing directors at the for who refer to their clients like this. muppets they call the muppets here's the excerpt over the last twelve months i have seen five different managing directors refer to their own clients as muppets sometimes over internal e-mail even after the f.c.c. fabulous. god's work carl levin them tires no humility no no humility that's the takeaway they don't care they're so removed from it that they don't have to care if you're making that kind of money what incentive is there to care but i think it's more than that i think they're of a pleasure from actually screwing their clients and if you talk to people on wall

street or work on wall street people have an attitude especially on trading this which is i'm going to we're going to screw this guy we're going to take his money and we're going to go and do it and that the stock strong aggressive i would too so i think it's part that's part of the game only they want to take the money but they want to we want to be true to the ground when they do it since gives a little love throws us a bone on the psychopath story the one in ten people on wall street being psychopaths where he notes that in order to be a leader you just don't have to be you just can't be a current axe murderer you know it's ok if you have an axe murderer across just to let us know make money you're good to go it's all that matters i mean it's about making money there's nothing new here and like this like there's like five or so they're absolutely see their clients know that at the end of the issue is that they feel like the kid good thing about it that's why we make the comparison of the mafia because it's pretty much they're being strong are what you've said a lot to that point to now one thing i want to point out is that greg smith is being totally like liam in the blogosphere i saw one form of posting where they

said this is a guy having a public midlife crisis and basically posting his resume on the new york times what do you think of that because one thing that doesn't really help this guy's case is that he throws in there that he you know one table tennis in which a live picture that's one. starring hart examples of his hard work throughout his lifetime but some really help your case i think there's there's a myth yeah i mean i grew up here actually i think it's kind of weird i was sort of . like material no yeah i mean honestly it was kind of i wouldn't be this size or really sound that who is typical bankers playing people for real kind of like you know i don't know shannon when you think i'm going to have to get a. table tennis not included but i don't run. in quite a long time and if we can bring this because. i think you have much more fun as was pointed out to go on a lot of not often you see how something that's valuable in the new york times op

ed page that's for sure speaking of things people are writing about ben bernanke he is the cover story of the april edition of the atlantic and the story is entitled the hero ben bernanke you save the global economy so why does everybody hate him well let's just take a look back to give a little bit of context to two thousand and nine when bernanke was named time magazine's person of the year. ben bernanke young first glance might seem like kind of a colorless bureaucrat in fact he's mentally powerful he's immensely thoughtful you see any interview in time magazine he's someone who recognized the stork important nobody was doing the chairman whether it is greenspan or bernanke he can do no good because our troubles they cause the inflation they cause and therefore the but the correction is always there for yes dr paul and even in this article it points out that bernanke has always referred to bubbles in quotation marks that

just kind of sums it all up a guy that doesn't even believe that bubbles really exist except you know well in this case of course me i mean bernanke is always scared me because it's not like greenspan greenspan you he was king was compromised he was wrong to compromise ideology and he was he was on a power trip but perhaps you actually believe that he truly is as march average scribed a madman ok during the cold war we thought we had rational actors to negotiate with on the side of the russians the u.s. and the russians right but in the case of ben bernanke you know he's irrational he literally believes what he's doing he actually believes in the thoughts he believes that he can keep rates at zero that the economy's going to recover well he's in fact an arsonist and he's letting all the fires and losers absolutely kill it let me just point out how crazy this sounds because one of the things that's hopping about is bernanke you say yeah you have to get bank balance sheets healthy but individual consumers are important in subjecting the system to high unemployment high rates of bankruptcy and foreclosure is a very ineffective way to get there yet ok so vital doing everything props up the banks and not doesn't help unemployment doesn't help these things i mean none of

that is really change and of course who's probably the best we're going to think of this open economy just the freakiest thing up front that is what scares me twilight zone it's the twilight you do do do with that it's all we have time for that's our show today thanks so much for tuning in don't forget to follow me on twitter at lauren lyster and go give us comments and feedback at youtube dot com capital accounts from everyone here thanks so much for watching our great night.